Oil and the Dollar

[freddyv]

Big Jim, interested to get your thoughts on this topic.

Ron Paul, in a recent debate, mentioned a New York Times article that ran this past Friday. In terms of the US dollar, oil prices have increased 350% in the past decade. When the price of oil is measured in terms of gold, however, the price has remained relatively flat.

We all know that the price of oil is a supply and demand issue, but this suggests that the weakening of the dollar has had a profound effect as well. Currently the US dollar is worth less than the Canadien dollar and is valued at about 60% of the Euro.

[HBGOnline]

Certainly I'll chime in here but the two are not related as the NY Times would have you believe.

The main thing about the "worry" of the dollar is, don't worry if you plan on staying and buying stuff USA. Here's the problem we are faced with.

The dollar could easily rise in value if the Fed raised interest rates. Pretty simple to do in therory, but in real life it would destroy both business and the average Joe. The Feds main job is to cut off inflation and they have done a great job over the last 20 years. Later this month the Fed will probably cut another .25 to .50 basis points. So yes the dollar will be valued lower again. Talk is this will be the last cut and the rest of the year should go unchanged.

Also if I'm not mistaken I thought I heard the dollar dropped about 10% in 2007 yet the cost of oil rose about 60%. As you can see there is more to what happens with oil prices than just the strength of the dollar.

You like to do research, so let me give you a homework assignment. See how much oil is produced in Canada and Mexico. We sit right in the middle. However because this country has turned into a bunch of pussies, we prohibit exploration on our own land. Did you know ANWAR has an oil reserve bigger than any Middle Eastern nation. We can't touch it because of the enviromental whack jobs. The Gulf of Mexico is rich with oil, however these same people prohibit us from tapping into it. So in 5 years or less China will be drilling in "International waters" and taking it from us.

Al Gore wants us to believe wind mills, solar panels and other alternative sources that actually takes more carbons to produce, will save the planet. Do the math on the power that can be generated from 1 nuke plant. or how many wind mill farms and solar panels would it take to match the capacity of a nuke plant.

Our great country has the resources and the technology available to produce what we need for now and the future. The problem is the selfish few that prohibit us from takening care of ourselves.

So don't let the scare tactics of the current weak dollar, get to you. It will correct itself over time. And if you don't like high oil prices, beat the shit out of every tree hugging, envirometal whack job you know.

I'm more worried about the price of oil. It feeds our enimies with a lot of money. The Middle Eastern nations are way to unstable for me, but a bigger fear is Russia taking in a ton of money from oil exports.

[freddyv]

I'm familiar with ANWR. I personally don't have a problem with drilling there. If the dollar were stronger though, would we not be able to get more oil for our money? The whole global economy thing sort of throws a wrench in the "if you plan on staying and buying in the US" thing as we are not a self-sustained entity and we get most of our "stuff" from outside of the country...we run HUGE trade deficits.

people get all up in arms about "we have to be in the middle east to protect our oil interests," but the fact of the matter is that we only get a small portion of our oil from there. I understand their link in the supply chain, but it seems to me that we could threaten to cut off all of the "aid" money we provide them and strong-arm them into setting lower prices...or just take that money and buy more oil if they don't bite.

also, oil companies and the like typically buy up technology that would help us to reduce our dependence on oil before it ever gets to market. makes it kind of hard for us to get off the sauce.

we should dump money into figuring out fusion.

[freddyv]

Oil jumps to new record on dollar's fall By JOHN WILEN, AP Business Writer
Associated Press

18 minutes ago

NEW YORK - The surging price of oil reached another milestone Monday, jumping to an inflation adjusted record high of $103.95.

The weaker dollar that has propelled oil and other commodities prices higher sent light, sweet crude for April delivery past $103.76 a barrel on the New York Mercantile Exchange. That's the level many analysts consider to be the true record high for oil, after its $38 barrel price from 1980 is translated into 2008 dollars.

Futures later retreated from that high to settle up 61 cents at $102.45 after Royal Dutch Shell PLC said it would resume oil shipments from Nigeria that had been disrupted by rebel attacks.

Oil's most recent run into record territory has been driven by the greenback's slump against other world currencies. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.

Gold, copper and wheat are among the other commodities that have rallied as the dollar has fallen.

"It's coming down to another commodity price rally," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago.

The dollar has been weighed down by concerns about the U.S. economy and the Federal Reserve's interest rate cutting campaign. Lower interest rates tend to weaken the dollar, which fell Monday to a new low of $1.5275 against the euro.

The struggling dollar has prompted a wave of speculative buying by oil investors seeking a safe haven from the ongoing volatility of the stock market. Such speculation can become self-perpetuating, driving prices higher and attracting even more speculators.

Many analysts believe oil prices aren't justified by crude's underlying supply and demand fundamentals, and are due to fall at some point. While supply disruptions in Nigeria and the prospect of supply cutoffs from Iraq and Venezuela helped boost oil prices last year, domestic oil inventories are now rising even as a number of forecasters are cutting their demand growth predictions due to the slowing economy.

Late in Monday's session Shell said it would resume oil shipments from two of its Nigerian facilities that had been suspended under a declaration of force majeure, in which a company says it can't meet contractual delivery obligations due to events beyond its control, Dow Jones Newswires reported. It was unclear how much oil the facilities will pump. The news fed some of the late pullback in oil.

Investors are keeping an eye on OPEC, which meets Wednesday to consider production levels. Most expect the Organization of Petroleum Exporting Countries to hold output steady.

"Unless there's a surprise ... I think it's a non-factor at this time," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos., of OPEC's impact on trading Monday.

As for where oil goes from here, analyst estimates vary widely, with some predicting an eventual decline to the $65 or $70 range as supplies continue to grow and demand falls, and others seeing oil rising as high as $120 as investment capital continues to flow into oil markets from overseas.

For its part, the Energy Department's Energy Information Administration's latest prediction is that oil will average $86 a barrel in 2008, up 19 percent from 2007, when oil averaged $72 a barrel.

Surging oil prices are boosting prices at the pump. The average price of a gallon of gas stood at $3.165 Monday, according to AAA and the Oil Price Information Service. That's down 0.1 cent overnight, but up nearly 70 cents from a year ago. The Energy Department expects gas prices to peak near $3.40 this spring, well above May's record of $3.227, but some analysts predict prices could rise to nearly $4 a gallon.

Diesel prices, used to transport the vast majority of the nation's goods, are also surging. Diesel prices hit another new record of $3.674 a gallon Monday.

In other Nymex trading, April heating oil futures rose 3.39 cents to settle at $2.8408 a gallon, and April gasoline futures rose 0.21 cent to settle at $2.672 a gallon. April natural gas futures fell 2 cents to settle at $9.346 per 1,000 cubic feet.

In London, Brent crude futures rose 38 cents to settle at $100.48 a barrel on the ICE Futures exchange.